Fraudsters attempt to slide past a business's defences and claim a piece of their revenue almost every day. This means payment fraud is an all-too-familiar threat for merchants today. It can directly impact growth and sometimes even cause a business to fail.
This guide takes a deep look into online payment fraud and the protective measures a business can take. It also covers the usual disputes faced by merchants so readers can make informed payment-related decisions for their businesses.
Before dealing with online payment fraud, merchants must understand what actually happens in the few seconds between a customer clicking "Pay Now" and the money landing in their account.
It appears to happen in seconds, but five players work behind the scenes:
The person who purchases the product or service.
The business that accepts the payment.
The institution that processes card payments and enters them into the system.
Visa, Mastercard, American Express, etc., are the usual networks. They act as the digital highways connecting everyone.
The customer's bank that issues their card and holds their funds.
A payment becomes fraudulent when a charge is made without the real cardholder's consent. Imagine a hacker gets their hands on a stolen card number that hasn't been flagged yet. They visit a website, buy a product, and the transaction goes through because the data matches. Everything looks fine until the real owner checks their bank statement.
And when the cardholder spots this charge, they notify their issuing bank and file a chargeback. You can dispute a chargeback if you have proof the purchase was legitimate, but if it was genuine fraud, the cardholder wins the case.
The Real Cost of Payment Fraud
Losing the sale is annoying, but the actual damage goes much deeper. A lack of robust payment fraud management means you could soon face:
The penalty banks charge you to reverse the payment.
Higher network fees as the card networks penalise merchants with high dispute ratios.
Excessive time spent manually reviewing suspicious orders or gathering evidence for disputes.
This is why modern merchants need dedicated payment fraud solutions that flag stolen credentials before the order ships. This can save both your revenue and your time.
According to a report by the European Banking Authority and the European Central Bank, payment fraud reported across the European Economic Area (EEA) reached €3.4 billion in 2022. The next year, it amounted to €3.5 billion, and then rose to €4.2 billion in 2024. These figures highlight the need for businesses to have strong fraud prevention measures in place. These will identify and block fraudulent payments before they occur.
The financial system operates on a "guilty until proven innocent" principle. When the chargeback is initiated, the transaction funds are taken from the merchant’s account. They are sent back to the buyer, long before anyone looks at the evidence.
After this, the clock starts ticking. The accused merchant usually has around 5 to 21 days to challenge the claim. When they miss that deadline, the funds are forfeited without any questions.
When a merchant decides to contest a dispute, the entire responsibility sits squarely on their shoulders. To win, they must prove two main things:
The person who placed the order was the actual cardholder and authorised the charge.
The customer clearly agreed to the terms of service, return policy, or cancellation terms at checkout.
This is where a thorough review of payment fraud prevention logs becomes the best asset. When fighting a dispute through a payment gateway, the business must upload concrete proof to back up its case. Regardless of the fraud type, strong evidence typically includes:
|
Evidence Type |
Purpose |
|
IP addresses and server logs |
Links the buyer to the order activity |
|
Order confirmations and customer communication |
Verifies the transaction and interactions |
|
Delivery and carrier records |
Confirms shipment to the customer's address |
|
Previous successful orders |
Shows a history of legitimate transactions |
If a dispute arises, the business must directly contact the customer first. Sometimes a quick conversation clears up simple misunderstandings. For example, a buyer may fail to recognise your billing name on their bank statement.
Still, the merchant must not wait for the customer to cancel the dispute on their end, even if they promise that they've called their bank to drop the claim. The business needs to stay on the safe side. For this, they must formally submit evidence before the deadline. If they skip this step, the issuing bank defaults to a win for the cardholder.
It's a common misconception that payment processors decide who wins a chargeback. They don't. The final verdict rests entirely with the cardholder's issuing bank.
The processor only acts as the intermediary. When they get the documents, they verify that they meet the card network's formatting standards and pass them along to the issuer for review. As soon as the bank reaches a decision, the result is relayed back to the business's dashboard.
Keep in mind that win or lose, disputes carry an administrative cost. In most regions, the chargeback fee charged by the processor is nonrefundable (regardless of whether the bank ultimately rules in the business's favour).
It's impossible to drive the risk of payment fraud down to absolute zero. But playing defence after a chargeback is always a losing strategy. The most effective approach is blocking malicious attempts before a transaction ever settles.
As online shopping grows, staying passive carries a massive price tag. Modern payment fraud trends show that online payment fraud losses are skyrocketing globally. Research also projects e-commerce fraud to reach $131 billion. Plus, an average enterprise now bleeds around $11.4 million annually to bad actors. Using solutions like Antom Shield is no longer optional. Businesses must implement robust measures to protect their data from hackers.
Here are a few payment fraud solutions that can help secure a business:
1. Adjust Your Shipping Workflow
If a business sells physical goods, a few tweaks in the system can save thousands:
It can build in a 24-to-48-hour delay before shipping high-value orders. This gives genuine cardholders time to catch unauthorised charges on their bank alerts. They can contact the business before the inventory leaves the warehouse.
Moreover, the business must always ensure physical shipments pass Address Verification System (AVS) checks for billing and postal codes. Shipping items to unverified addresses might leave the business defenceless during a dispute.
2. Provide Safe Payment Methods
Manually entering card details carries a higher risk of fraud. A business can reduce these risks by providing alternative payment options.
For example, payment methods supported through platforms like Antom use added security layers. They have built-in biometrics (Face ID or fingerprint authentication) and passcodes. Such measures make fraudulent transactions more difficult to pull off.
3. Upgrade to Machine Learning Detection
Old-school fraud detection worked on "if/then" rules. For example, they automatically blocked every order over €500, or flagged purchases from specific zip codes. Hackers could easily bypass these checks. Meanwhile, legitimate buyers frequently get caught in false declines.
Modern systems use adaptive machine learning. These algorithms analyse hundreds of unique signals on every single transaction in real time. They assign a dynamic risk score and decide whether to approve or block the payment instantly based on changing risk patterns.
4. Collect More Data at Checkout
The more information collected at the checkout, the easier it gets to spot genuine buyers. People who use stolen credentials can be identified at this stage.
At a minimum, the business should ask for
Billing and shipping names
Email addresses
CVV numbers
Postal/zip codes
The extra data also gives concrete evidence to submit if a dispute occurs.
5. Establish Custom Risk Rules
Every business has unique risk factors. Advanced fraud management tools allow businesses to create tailored rules that fit their specific operational model.
For instance, a business might set its system to automatically require a manual review when a first-time customer places an unusually large order, or temporarily lower its risk-score threshold during high-traffic holiday sales. High-end tools also show the exact signals contributing to a high-risk score, helping the business refine its rules over time.
6. Build in a Manual Review Safety Net
Automated tools handle most of the hassle. Having an internal review step builds a crucial second layer of defence.
When an order triggers a warning flag, a team member can manually check the details before it is fulfilled. If something feels off, they can quickly verify the order over the phone or via email. Or, they can simply refund the payment immediately to avoid an expensive chargeback later on.
Payment fraud is evolving every day. A business must stay one step ahead to ensure it isn't attacked by malicious entities. This means staying in the loop of the latest trends and using tools like Antom Shield to secure their data.
When businesses play their cards right, they can build a reputation of being the best ones in the field. Remember, the goal is not just to prevent fraud, but to create a payment experience that is secure and reliable for everyone!
Traditional fraud usually happens due to stolen card details. On the other hand, friendly fraud happens when a buyer disputes a legitimate transaction. This could be due to incorrect billing information, claims of unauthorised transactions, or deliberate chargeback abuse.
Businesses can reduce these problems with clear receipts and delivery tracking.
Card networks generally expect merchants to keep chargebacks below 1% of total transactions. If the ratio exceeds this limit, the payment processor may place the merchant's account under review. They may charge extra fees per dispute, or hold a percentage of their sales as a reserve.